The macroeconomic impact of asset restrictions on pension funds

Brandt, Lily (2012-03)

Thesis (MBA)--Stellenbosch University, 2012.


Asset restrictions are prudential regulations applied by regulators around the globe. In essence, they prescribe asset restrictions as a risk-control measure to establish appropriate capital requirements for regulated institutions. The aim of prudential regulations and standards is to protect consumers who acquire the products and services offered by these institutions. Pension funds in Namibia must comply with Regulation 28 of the Pension Funds Act, 1956. Regulation 28 is the prudential regulation that governs investment limits for pension funds. The regulation prescribes maximum investment limits for all asset classes. In 2009, the government made a policy decision to amend Regulation 28 to prescribe a minimum investment in unlisted shares (private equity) that would be applicable to pension funds, long-term insurance companies and unit trusts. The objective of government is to use Regulation 28 as a macroeconomic tool to control capital flows and channel capital to domestic companies. The regulation will stimulate economic activities, local ownership, create employment and reduce poverty, which will eventually facilitate economic development. In addition, this objective has the potential to assist the development of the private equity sector in Namibia. The implication of this development is that retirement savings will be utilised to achieve macroeconomic objectives and develop an industry sector. Private equity has shown tremendous growth in developed economies and is beginning to grow in Africa as well. Private equity is a sector that has the potential to realise excellent returns for pension funds, provided the risks are adequately controlled and managed. The study proposes a regulatory framework for unlisted investments (private equity) by pension funds. The framework considers risks and proposes how to best manage and control them. The conclusion is to abolish a prescribed minimum and to increase the domestic asset requirement. Ultimately, regulators exist to protect consumers while the development of markets is a secondary priority.

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